Volkswagen Dealerships Healthy, Looking Ahead to U.S.-Built Cars

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May 19, 2009

As the dealership networks for Chrysler and GM are being quite painfully trimmed, Volkswagen’s dealer network is doing just fine, according to Volkswagen of America president and CEO Stefan Jacoby, and all of its individual dealerships remain profitable.

Volkswagen now has about 580 dealerships in the U.S.; only two have gone bankrupt over the past year, Jacoby says, but both were due to difficulties associated with another brand/automaker. In the U.S., VW has largely weathered the poor economic climate, so far, better than most other automakers and has broadened its share of the market over the past year, with 2.0 percent of overall U.S. vehicle sales in the first quarter of 2009 versus 1.4 percent of the market in the same quarter of 2008.

Jacoby said that Volkswagen is maintaining the growth-focused strategy in the U.S. that the company announced at the end of 2007, shortly after he took the helm. The goal is 800,000 vehicles per year by 2018—nearly triple the company’s 2008 sales. That will take some aggressive maneuvering, as Jacoby said that he does not expect a full recovery for the industry or the U.S. market anytime soon, with the market staying below 10 million vehicles this year, then starting a slow recovery in 2010, settling in the 13-15 million vehicle range—not 16-17 million rate of the boom years, as recently as 2007.

Despite huge successes in India, Russia, and China, according to Jacoby, one of the company’s “notable failures has been the U.S. market.” Over the past year, the company moved its headquarters from Auburn Hills, Michigan to Herndon, Virginia, restructured almost completely, and reduced its overall headcount by about 30 percent.

But what do these changes mean to car shoppers? For one, much-improved showrooms and dealership facilities. Several years ago, the company moved more aggressively to update its showrooms for the arrival of the Phaeton luxury sedan and Touareg SUV. Those upgrades are still underway; almost 40 of VW’s U.S. dealerships have invested five to fifty million dollars each into dedicated VW showrooms.

The other change, which is more urgent, involves the service side. VW has ranked near the bottom in recent J.D. Power Customer Service Index (CSI) studies, which refers to customer satisfaction with dealerships after the sale. But Jacoby—who was, the same day TheCarConnection.com spoke with him, headed to a meeting with dealers—insists that Volkswagen has moved quickly to adopt changes and remedy this; he says that the automaker now has “very transparent, open communication” with its dealerships. That means having more direct company product support available to dealership technicians with issues or questions, with support staff following up with the dealership to make sure the problem was fixed. There’s a much greater effort to make sure dealerships fix an issue properly the first time, he said.

The third way VW hopes to draw more shoppers back to VW is by providing products that are better focused for the U.S. market, with the upcoming assembly plant in Chattanooga, Tennessee an integral part of that.

“We’re not backing one inch from our strategy,” said Jacoby, and that means offering dedicated production vehicles for North America. “We’re continuing as originally planned with our investment.” The Chattanooga plant will cost about $1 billion, but it will create about 2,000 jobs directly and about 10,000 additional jobs through related suppliers.

Jacoby said that the new plant will also help solve some of the sustained exchange-rate issues that have reduced profitability for many years. He also concedes that some of VW’s European products just don’t always translate well into this market. “We will solve the cupholder problem,” he mused.

The first vehicle to be produced at the plant will be formally announced in 2011, with the first major U.S.-built product intro likely in spring 2012. This vehicle is widely expected to be the successor to the current Passat—Jacoby says that it will be a bigger mid-size sedan—while the relatively new CC is expected to stay on sale for the foreseeable future alongside the new sedan.